The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Monday, August 15, 2016.
The laws of the jungle are becoming important again as the life cycle of humanity continues to turn. Increasingly, it's survival of the fittest for both the have-nots and haves alike, whether they choose to realize this or not. In the jungle, it's 'do or die' – the laws of natural selection. The weak and less endowed must stay ahead of the strong or be eaten – and they know it. For some time now however, increasing numbers of human beings have become desensitized to rules of Mother Nature due to technological innovation that has made life 'easy' for the masses like never before. And we are still in this false bubble, however the predators continue take prey.
Times are getting tough again however, where the life cycle of benefits associated with technological innovation (money printing included) are being challenged, now forcing increasing numbers back into the jungle. More and more people are beginning to realize we are returning to the ways of the jungle as they are being disenfranchised from easy money existence – where only the top 1% and their dogs (government bureaucrats, private sector agents, etc.) are still feeling the benefit of sterilized money printing. This is understandable of course, because consistent with the laws of the jungle, if you threaten the dominant animals, they will eat you, even their own.
So this is essentially what is happening out there these days, where whether you know it yet or not – if you want to survive – the idea is not to be eaten. In the West, and in terms of 'technological innovation' as it applies to the financial markets, which in reality is more 'desperate intervention' than 'basic innovation' (the basic innovation was money debasement itself, discovered long ago, with all new variations attempts at deception), increasingly complex financial engineering has been the status quo's modus operandi to continue the pilfering of the masses, with negative interest rate policy (NIRP) the latest example. Again however, as always, the question is, 'how long will this variation of sterilized currency debasement last'; and, 'if it fails, would this be the straw that breaks the camel's back, propelling modern men back towards our more primitive origins'?
The onset of World War III (WWIII) would answer these questions readily, as competition for scarce resources intensifies into a truly 'dog eat dog' world. And if Hillary gets into the White House this fall, we should see proliferation in this regard quickly not long afterwards, as she endeavors to reward her neocon supporters, defense contractors, etc. – the US war machine. This is of course why Russia and China have been scrambling to protect themselves from these animals, because they are so 'out of it' now they actually think they can profit from some kind of sterilized war (no nukes?), like NIRP (economic war imposed on both foreign and domestic targets), with the delusion factor now running so high – if the public were not so high (distracted with drugs, money, whatever) – they might be able to see clearly – making them justifiably terrified.
So again, as the title of this piece suggests, we had better 'do something' about these nut bars or it could be war quite soon – a war we cannot win. Trump is putting himself out there as the solution to this situation, however as the alluded to above, what happens when the competition for scarce resources intensifies globally anyway? You should know this is China's grand plan long-term, better know as the Silk Road. They intend to overtake America in every way (military, currency, etc.), which is understandable because it's natural – the laws of the jungle at work. That said, with China's aspirations perhaps not so clandestine, still, what the neocons have planned is far worse because they are fighting the 'natural order' – because The Banana Republic of America is broke.
Such thought is evidenced in the fact the global decentralization process continues to accelerate. Because when people are facing increasing adversity, which is the case now evidenced in declining economies, there first reaction is to protect themselves – or 'pull their horns in' – especially once people figure out the central planners that were supposed to be taking care of them are just in it for themselves. What's more, the corruption is pervasive and everybody knows it. All over the world, with the benefits of money printing for the masses now fading, people can see embedded bureaucrats have only their own best interests at heart, and are systematically working to detach themselves from present hi-level hierarchies, including The American Empire and European Union, better know as 'The West'. (i.e. it's not Putin we need protection from, it's our own neo-fascist governments.)
But the spin masters of the West will not go quietly however – I can assure you of that. The police state, surveillance state – whatever you want to call out of control fascist bureaucrats hell bent on stealing the public blind – they like life just fine the way it is, and are more than willing to take yours to keep it. Know why police have immunity in shootings, fatal and not? Because the oligarchs and bureaucrats need their dogs to protect them from an increasingly angry public. The straw that will break the camel's back in terms of 'blow back' associated with this moving forward will be decided in the election. If Hillary is elected and America goes to war, with the draft (including women) invoked, just like Vietnam, lookout, because if you thought the protests of the 60's and 70's were something – 'you ain't seen nothing yet'.
Young people today are more aware of the fact war is just a tool of the 'moneyed interests', and they will rebel. Emotions are going to explode on this issue because youthful bubbles of 'entitlement' and 'social media distraction' will quickly disappear when millennials realize the 'greedy old bastards' want us to die so the stock market doesn't crash. Again, if Trump gets in and starts cutting taxes like he's proposing, stocks could see quite a surge going into next year without going to war – so you young voters better get off your butts in November. For traders, this is of course the most important thing you can watch in my opinion, because if Trump gets in, stocks could soar, temporary as any such rally might be. Because Trump will not be able to cut taxes with national debt levels so high, especially if interest rates begin to rise in earnest, which could be coming sooner than most think. (See Figure 1)
So what are Trumps chances of getting in, with the status quo hell bent on keeping him out? What's been happening is odds are improving the more desperate the status quo gets. Because like the Brexit vote, the 'plebs are pissed', and they are voting to kick the establishment in the teeth. And this won't change no matter what happens between now and November. Stocks crash – it won't matter because increasing numbers of people voting for Trump are being disenfranchised every day. In fact, a stock market crash right in front of the election would likely do nothing but help Trump because it would look like the status quo is out of favor and losing its grip. What's more, if people were actually listening to what Hillary is saying these days, promising to raise taxes on the middle class, one would think she would not be ahead in the poles, and perhaps in reality she's not. Perhaps the poles are a fiction, just like the stock market. (See Figure 2)
Looking at 'true sentiment' conditions, as measured by the key index/ETF open interest put/call ratios we follow (see here), with updated charts viewed here, we see a picture of complacency right in front of options expiry this coming Friday, something that historically is an anomaly. How can this be? Answer: It's the 'Hillary Effect'. The status quo boys simply will not allow stocks to go down in front of the election if they can help it – because this helps Hillary – so prop desks are on high alert. The question then arises, 'can they keep it up right into November'? These are the most desperate people in the world, so it's definitely possible if they can 'stuff Trump', where a 'full court press' in this regard is underway as we speak. As mentioned previously, only if it becomes clear prior to the election will the rats jump ship prematurely. This could happen at debate time, the first coming on (Monday) September 26. Trump is the superior debater – so this could be interesting. (See Figure 3)
And then there's Julian Assange, who is doing his best to destroy the status quo / Clinton machine, who could release those 33,000 lost emails that mysteriously disappeared around this time, that won't help matters for the Hillary camp as well. Thing is, and something most 'crazed traders' are not aware of these days, is if the broads take a tumble at some point in the not too distant future, so will precious metal shares if the above chart maintains any predictive value – showing an intense positive correlation between stocks and gold stocks. Take a good look, because again, contrary to belief for most, this is the case. This of course solves the question of what will happen when the Dow / XAU (Philadelphia Gold & Silver Index) Ratio (seen here in Figure 2) finally bottoms to correct higher as well – meaning both stocks and precious metal shares can be expected to fall whenever these days arrive.
Many participants in precious metal shares currently think they are bullet proof, and that nothing bad could happen to them. Funny thing is, the reason they think this is because of the price action and relentless rally since January; and the reason for this is the 'wall of worry' they have been climbing off the hedgers. So, yet again, we have extreme irony in extreme conditions, that will likely bring an extreme correction once speculators lose their penchant to hedge their exposures. I don't know when this will happen, but rest assured it will arrive at some point, likely when least expected. (i.e. in seasonal strength period, starting in September?)
So I think the S&P 500 (SPX) can still easily vex higher trajectories just above 2200 matched against the SPX / VIX Ratio hitting long-term sinusoidal resonance based resistance seen here in Figure 1, at approximately 200. Such an occurrence would correspond to the VIX vexing the round number at 10. If this happens in front of the election, even if as early as this coming week, short sellers should look at this a possible 'an opportunity' in my opinion, however stringent position limits should be employed given if nothing happens to knock Hillary off her quest for the White House running into November, prices could remain buoyant for some time yet.
And again, in terms of precious metal shares, sentiment wise, with all the hedging still going on in the shares (see above), it's difficult envisioning anything too bad happening to them between now and expiry on Friday. After this however, starting next week, it could be a different story depending on post expiry distributions (ratios), macro-factors, etc. We will be sure to have out monthly 'true sentiment' study out promptly next Wednesday to keep you abreast of any significant changes. If I had to guess right now, complacency should continue to grow, as is the case in the futures market, which are at records.
Again, most traders don't realize there's a positive correlation between the broads and precious metal shares, making for a dangerous situation not just for the former group, but the latter as well. That means this is not a time to be bold no matter how easy it appears to make money right now.
Caution is the word until we have a reasonable correction in the sector then; especially in the juniors, considering the CDNX has not had a decent pullback since last year – and because it has a very tight relationship with the broad measures of wealth. (i.e. liquidity.)
So be careful going into crash time – September and October – as conditions are ripe for some unexpected action this year.
Remember – most think the government won't let anything nasty happen going into the election.
Others think the markets are too big to fail this time around.
This is a recipe for disaster for these types.
See you next time.